Report

The Securities and Exchange Commission Announces New Cooperation Initiative

January 2010

On January 13, 2010, the Securities and Exchange Commission (SEC or Commission) announced a series of new measures designed to encourage individuals and companies to cooperate in Enforcement Division (the Division) investigations and enforcement actions.

First, the Commission issued a policy statement setting forth for the first time formal guidelines to evaluate and potentially reward cooperation by individuals in investigations and enforcement actions. Second, the Commission authorized the use of a number of new "cooperation tools" designed to establish incentives for individuals and companies to cooperate with the Division. The enforcement staff is now authorized to execute formal written cooperation agreements, deferred prosecution agreements, and nonprosecution agreements with individuals and companies, although a formal witness proffer will be required in most cases before any of these new agreements may be used. These new measures are codified in a revised version of the Division's Enforcement Manual in Section 6, titled "Fostering Cooperation."

The Commission's new cooperation incentives demonstrate the importance it places on individual and company cooperation in its enforcement efforts. In his public statement announcing these new measures, SEC Enforcement Director Robert Khuzami characterized them as a potential "game changer" for the Commission, and recognized that there is "no substitute for the insider's view into fraud and misconduct that only cooperating witnesses can provide."

Determining the value of cooperation with the enforcement staff has long been a major question for defense counsel. To date, there has been no predictable method of calculating how cooperation might translate into tangible benefits for individual or company clients that are the subject of a staff inquiry or investigation. Although the amount of credit that cooperators may receive remains at the discretion of the Commission and its enforcement staff, the Commission's cooperation initiatives are important and meaningful steps in the right direction toward providing more transparency and more options for defense counsel seeking more defined results for their clients' cooperation.